The truth behind Khazanah Nasional's financials

KUALA LUMPUR: With net assets worth well over RM100 billion, Malaysia's sovereign wealth fund, Khazanah Nasional Bhd, is in the best position to outdo most other corporate entities on the media front if it wants to.
But instead, it chooses to go about its work quietly and shows humility by not shouting out its achievements.
That has been the image portrayed by the Khazanah management led by Managing Director, Tan Sri Azman Mokhtar, in the last 13 years.
But out of the blue came two reports in Singapore Straits Times in the last few weeks that thrust Khazanah into the spotlight that sparked off media interest on this side of the Causeway as well.
It started off early last month when the newspaper reported that a carefully thought-out internal succession for the top job at Khazanah was starting to unravel "due to some powerful lobbying by external candidates hoping to succeed Azman".
Two Khazanah deputy managing directors and two outsiders were reported to be in the running to take over from Azman who has been at the helm since 2004 and whose contract expires at end-May 2019.
And last week, the Straits Times added another twist, by reporting that Khazanah was "feeling the heat" amid pressure on it to get higher returns and to change its investment strategy.
At the outset, highly-placed sources within Khazanah are puzzled over the timing of this speculation on the purported leadership change when Azman still has 18 months left until the end of his contract.
They are equally curious over the negative attacks on a professional institution whose track record on financials is solid and which has more than performed by any measure especially given the fact that Khazanah's mandate does not involve receiving any regular capital injections.
Both the traditional and social media jumped on the bandwagon taking the cue from the Singapore newspaper but Khazanah quickly doused their enthusiasm by describing their reports as "giving inaccurate and misleading" picture of its financial performance.
For instance, the Straits Times reported that Khazanah has managed a less than one per cent in dividends a year between 2013 and last year, but Khazanah disputed this by saying this conclusion is arrived at based on the daily's selective focus on a narrow and incomplete set of indicators of its financial performance.
It says that the most representative measure of Khazanah's financial performance should be based on total returns that take into account realised and unrealised returns as well as the distribution of returns through dividends.
This translated into an annual compounded return of 9.3% per annum over the 13-year period from May 2004 to December 2016, rather than just one per cent, or 2.6%, return as the newspaper articles implied.
Khazanah's shareholders' funds have also grown to RM37.8 billion as at December 2016 from RM13.2 billion in the same period in 2004, up RM24.6 billion.
The sources told Bernama that the misportrayal of Khazanah's financials in the media lately stemmed from ignorance of its portfolio and mandate as the Malaysian government's strategic investment fund.
Unlike entities such as the Employees Provident Fund and Tabung Haji, Khazanah does not receive regular capital injections and on top of this, it also undertakes catalytic investment – both domestically and internationally -- apart from its developmental and national initiatives.
It places a premium on human capital development via its Yayasan Hasanah set up in 2015 with RM3 billion pledged as an endowment in perpetuity to drive a nation-building agenda of progressing Malaysia as a globally-competitive nation.
The capital is protected and only the interest is used thus ensuring its sustainability. Last year alone, the foundation spent about RM125 million for good causes primarily in education.
And it would continue doing this in perpetuity, said the sources, adding credit for this social face of Khazanah should go to the wisdom of Prime Minister Datuk Seri Najib Abdul Razak and the Khazanah Board.
"This investment could have been money that could have been declared as dividends. So commentators should make proper analysis before making simplistic and narrow assumptions and conclusions," said the sources.
One social responsibility initiative that Khazanah could be proud of is the Skim Latihan 1Malaysia, or 1Malaysia Training Scheme, that provides skill training to unemployed graduates to enhance their employability.
So far, it has trained some 4,200 graduates at between RM80,000 and RM90,000 each and the good news is that over 80% of these otherwise unemployed graduates have found jobs.
Behind the scene, Khazanah was also tasked with the tough negotiations with Singapore for the development of the land inside the island republic once used as railways tracks for Malayan Railways (KTM) following the termination of service.
It has struck a very good deal with Singapore on the land.
Viewed objectively, the media hype about who's going to succeed Azman is, in reality, a non-issue at this point of time.
Not only because he still has many months of his contract left as well as the fact that Khazanah itself has a well-established and orderly succession process that will kick in when the time comes and in line with good institutional practice.
Within Khazanah circles itself, some would regard assumptions of a leadership change as even far-fetched as they expect Azman's contract to be extended as well, as Khazanah under his leadership is indeed in very good hands.
Senior journalist M. Shanmugam, in his column in The Star, wrote: " What Azman has instilled in Khazanah is integrity in governing public assets and managing public funds.
"Khazanah is a well-respected sovereign fund in the international capital markets. It has earned a name among investors and bankers for its professional management that conforms to internationally-acceptable standards," he said.
This is as high a recognition that any Malaysian corporate body could expect to get and Khazanah has achieved this and more without bragging about it. – Bernama